Field experiments were conducted to investigate an appropriate saline water management strategy to enhance the yield and irrigation water use efficiency (IWUE) of drip‐irrigated onion. The effects on soil water–salt dynamics, growth parameters, IWUE and yield were assessed under different lateral spacings and irrigation treatments. The different treatments comprised two lateral spacings (45 and 60 cm) and four irrigation treatments (canal water, C; conjunctive use of canal and saline water in a 1:1 ratio, C1S1; in a 1:2 ratio, C1S2; and saline water, S). The results show that soil moisture content decreased vertically downwards and radially outwards in all treatments, whereas soil salinity increased and decreased with increasing radial distance and soil depth, respectively, throughout the soil profile irrespective of the lateral spacing and irrigation treatments. The maximum yield and IWUE were observed at 45‐cm lateral spacing for treatment C, followed by C1S1, C1S2 and S. It was concluded that the C1S1 treatment can be employed successfully for onion cultivation in sandy loam soil without any significant reduction in yield. The present study highlights the significance of irrigation treatments and lateral spacing for maximum production, which may be used as a baseline/guideline to increase the income of onion growers/farmers in semi‐arid regions.